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accounts

Swaroop (13 Points)

10 May 2007

what shuold we prepare invenotry of stock account we calculate the cost of the product by various method what is use of the inventory of stock? send me quick reply

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Akhil (169 Points)
Replied 10 May 2007

The One Says:

Your question is not clearly worded but hope this helps. If you need further clarification feel free to post further querries

Year End Invetory is calculated to find out what is the true nature of the gross profit and gross margin. It is embedded in the fundamental accounting principle viz. the matching concept ie the cost should be related to revenue or the cost of goods sold is weighed against the actual sales. Once this is done the true profit can be determined. The principles and method used while valuing inventory are varied and depend on the circumstances of each entity. It also acts as a form of Internal Control.

Also without computing year end inventory the entity would not comply with the requirements of true and fair nature of accounts and compliance with accounting standards.